With the Union budget just around the corner, the healthcare industry is pinning their hopes on tax reductions and incentives. However, those closely watching the health budget are of the view that tax holidays do not necessarily translate into lower healthcare costs. The need of the hour is to focus on improving healthcare infrastructure in the country which could get reduced funding this year.  

It’s a given that there would be a hike in budget allocation for healthcare in the 2019-20 interim budget, the only question is by how much. The medium-term expenditure projection statement presented by the Ministry of Finance in August 2018 showed there could be as much as 11% increase in budget allocation to the Ministry of Family and Health in this year’s health budget. 

Data shows that from a budget estimate of Rs 52,800 crore in 2017-18, the allocation will be increased to Rs 59,039 crore. The Economic Times has reported that the increase in health budget allocation would be just 5%, with an enhanced focus on the National Health Mission (NHM), namely trauma and emergency care. 

The actual amount allocated would be known only on the budget day on February 1. 

While according to the expenditure projection statement, the ruling National Democratic Alliance (NDA) government is all set to increase fund allocation for the NHM by 17%, it also intends to bring down fund allocation for the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) by 17%. The PMSSY is a scheme with the objective of correcting regional imbalances in the availability of affordable secondary and tertiary healthcare services.

The NHM with its focus on emergency, trauma care, immunisation, disease control and family welfare is expected to get increased funding from Rs 30,634 crore in 2018-19 to Rs 35,962 crore in 2019-20.

But this hike comes at the cost of fund reduction by 17% for the PMSSY. This is the scheme through which institutions such as All India Institutes of Medical Sciences (AIIMS) are set up and government medical colleges are upgraded.

Expenditure projections show that funding for the scheme would see a dip from Rs 3,825 crore in 2018-19 to Rs 3,170 crore in 2019-20. 

”One could argue that this decline is only in one scheme and question why the government should keep spending on health infrastructure institutions. But have we really addressed the health infrastructure shortages in the health sector? Have we addressed the shortage of doctors and midwives? If not, then should we not be prioritising health infrastructure, which is both physical and as well as needs human resources,” says Nilachala Acharya, a research coordinator with the Centre for Budget and Governance Accountability, New Delhi. “Even access to basic healthcare is still missing in India,” he points out.

Taxation woes 

For the healthcare industry, any increase in the country’s health budget is good news but there is a need to bring down taxes on medical equipment and medicine in general. 

“Presently, many countries are moving towards a universal healthcare concept, India should also move in that direction. But to do that, incentives and tax breaks should be given to the pharma and medical devices industries in the country,” opines B Pratap Reddy, President, Indian Medical Association (IMA) for Telangana state. Reddy is of the view that all medicines in the country presently taxed at 12% GST should be zero-rated GST and the 12% GST on medical devices should also be brought down.

In 2017, the Union government took steps to bring down prices of medical equipment by imposing a price ceiling on devices, namely stents and knee implants. Prices are now allowed to increase annually only by 10 % for other medical devices.   

The price cap, according to the Medical Technology Association of India (MTaI), an association of research-based medical technology companies, has put considerable strain on the industry. 

MTaI claims that approximately 70% of medical devices in the country are being imported. In a press statement, the association cited the weak rupee and price cap to have had an adverse impact on the supply of essential healthcare items, like stents.

The association has been lobbying with the Centre for bringing down the customs duty on imported medical equipment from the present 7.5% to 2.5 %. They have also asked for a reduction in customs duty on spare parts of medical equipment. While medical devices are taxed at 12%, their spare parts are taxed at 18%. For example, while buying contact lenses, one pays a 12% GST, but the contact lens solution is taxed at 18% GST.     

Apart from tax breaks and rationalisation of GST rates, there is also a demand to impose a zero-rated GST on healthcare services. Presently, healthcare services are exempted from GST which has received a negative response from hospital chains who are unable to claim an input tax credit on the various services they offer. Adding healthcare services to the zero-rated GST slab would help them claim GST input credit, says MTaI. 

According to Pratap Reddy, “A tax reduction won’t be a burden on the government in the long run, we will have a much healthier society. The money saved through tax exemption and lower taxes on medical devices could be diverted to improve hospital infrastructure.”

However, Acharya is of the view that tax exemptions and sops to the healthcare industry without building on basic healthcare infrastructure would facilitate more private players and push people to private hospitals that are often expensive. He also questions if any of the companies would actually reduce prices after they get the exemptions.

“What the central government is doing in the last few years is that they are mediating for the private players at the cost of public healthcare. Are the industry people going to reduce the prices at least for the sake of the health of the country? We do have various committees and departments to keep the price of healthcare under check but they are not exactly effective,” said the researcher.

But what for the common man?

Even if some of these wishes of the healthcare sector are addressed in this year’s budget, for the common man it could make little or no difference on the ground if secondary and tertiary healthcare services are under stress.

In Hyderabad for instance, it’s common to see patients staying with their families at the state-run Osmania and Gandhi hospitals, both tertiary care hospitals, to avail even primary healthcare treatment. These state government hospitals are understaffed, lack resources and sometimes even turn away patients visiting from far off places as they are overburdened. 

The NDA government greenlit an AIIMS for Telangana at Bibinagar, in December 2018 under the PMSSY, which will be witnessing budget cuts this year. The Centre sanctioned the Rs 1,028 crore project, after a delay of over one year since it was announced. The new AIIMS in Telangana is expected to add 960 beds and take some of the load off the state’s strained healthcare infrastructure. 

A senior doctor with Gandhi hospital tells TNM, “Yes, an AIIMS in Telangana will surely help, but that won't mean that state-run speciality hospitals will witness lower patient footfalls. The increased access to tertiary care would only add more patients as they would skip primary and secondary healthcare services. We would be back to where we are now, nothing will change unless the Centre starts funding Primary Healthcare Centers (PHCs) and Community Health Centres (CHCs) through states to strengthen the rural healthcare system. Unless that happens, there will always be a flow of patients who will always have to spend more and travel from rural Telangana to Hyderabad for access to basic healthcare.”